Velázquez Introduces Bill to End Crypto Tax Loophole Abused in Puerto Rico

WASHINGTON - Today, Congresswoman Nydia M. Velázquez (D-NY) introduced the Fair Taxation of Digital Assets in Puerto Rico Act, a bill that would close a loophole in the federal tax code that is exploited by cryptocurrency investors claiming Puerto Rican residency to avoid paying taxes on income derived from investments in digital assets.

"For years, some of the wealthiest U.S. investors in digital assets have used Puerto Rico to avoid paying federal taxes," said Velázquez. "This influx has not brought promised economic growth, instead it has raised costs and driven displacement on an island where the poverty rate is already 40 percent. It's about fairness. If you're making money from digital assets, you should be paying your share-no matter your zip code."

Under current law, U.S. citizens who spend at least half the year in Puerto Rico can classify income from digital asset activities like mining, staking, or trading, as Puerto Rico-sourced and thus become exempt from federal taxes. Velázquez's bill would change that, making clear that digital asset income is still subject to federal taxation.

The bill comes amid ongoing concerns about the impact of the wave of crypto investors in Puerto Rico, many of whom are able to legally avoid paying any capital gains taxes by securing additional exemptions through local Act 22. Between 2020 and 2026, Puerto Rico is expected to lose $4.5 billion in revenue due to tax breaks for wealthy investors. An IRS whistleblower has also estimated that more than $10 billion in digital asset income is being shielded from federal taxes each year under current rules.

"Puerto Rico deserves better than being turned into a tax haven for the wealthy," said Velázquez. "This is about making sure the rules aren't written to benefit a select few, while working people on the island and the mainland pay the price. This bill will help ensure Puerto Ricans can shape their own economic future and build their lives on the island."

"For too long, federal loopholes have allowed predatory cryptocurrency investors to exploit Puerto Rico, displacing communities and exacerbating inequality. Together with various other forms of preferential tax treatment, they have served to further rig the economy in favor of the wealthy and well connected. Many Puerto Rican communities are struggling with basic necessities - they cannot afford to continue subsidizing their gentrifiers' digital assets as well. Additionally, based on past and ongoing audits of Puerto Rican tax incentives, there is a clear linkage between cryptocurrency activity and potential tax fraud." -Iris Figueroa, Senior Policy Strategist at Popular Democracy

The bill is cosponsored by Reps. Alexandria Ocasio-Cortez (D-NY) and Delia Ramírez (D-IL).

For a copy of the bill, click here.

###